Articles for Volume 18

Unit root test is viewed as mandatory on time series data since these data may possess specific properties like memory, trend and structural break. The results obtained by employing conventional regression methods without testing for the unit root in time series data might be misleading. This paper presents an overview of various unit root test methods and conducts the unit root test on Nepalese key macroeconomic data allowing one endogenous structural break. The test results show that out of the 18 macroeconomic variables, 10 have unit roots and the remaining 8 are stationary. An analysis of the structural break dates of these variables suggests that the Nepalese economy has gone through a structural change after mid-1980s.

Remittances are generally thought to contribute to savings and investments thus leading to economic growth. In 2004, officially recorded remittances flows to developing countries were greater than US$ 125 billion. The rise in remittances, that are less affected by economic cycles in the recipient country, are taking place at a time of declining official development assistance which adds more significance to the remittance debate and research. The various uses of the remitted funds vary in their potential to reduce poverty and create economic security for the household and community. In Nepalís case, in more recent years, remittances have been playing a pivotal role in the countryís economic development by relaxing the foreign exchange constraints and strengthening the balance of payments, among others. Although a gamut of policy measures have been taken by the concerned authorities for encouraging remittances through the banking channel, more needs to be done.

Some Measures of Core Inflation and Their Evaluations in Nepal [Prakash Kumar Shrestha]

This paper measures core inflation and evaluates their performance in Nepal. Concept of core inflation and survey of methodologies as well as international experiences and empirical evidence have been reviewed and analysed before measuring the core inflation in Nepal. An existence of asymmetric price distribution necessitates the alternative measure of inflation in place of traditional CPI-based headline inflation. Ultimately, by using exclusion method and stochastic measures, nine different types of core inflations have been computed. Empirical results show that core inflations perform better than the headline inflation in several aspects such as having less volatility, highly relating to money supply growth, and capturing the permanent component of headline inflation. Better core inflation is selected with the help of different performance criteria such as observing statistical properties, tracking trend inflation, finding the relationship with money supply, and the analysing the ability of capturing permanent component and forecasting capacity. However, no single core measure performs better in all aspects. Hence, a set of core inflation measures, namely exclusion based, weighted median and trimmed mean should be analysed in conducting the monetary policy in Nepal.

Hydropower has been recognised as a sustainable source of energy with almost zero input cost. Its benefits are that it is non-polluting in the sense that it releases no heat or noxious gases, it has low operating and maintenance cost, its technology offers reliable and flexible operation, and hydropower stations have increased efficiencies along with long life. Nepal's huge potential in hydropower is still untapped. Though Nepal has not yet been able to tap even one percent of its potential electricity capacity and 60 percent of Nepal's population is still deprived of electricity, it is fascinating to note that Nepal's start in 1911 in the hydropower generation almost dates back to a century. As a cheap, renewable source of energy with negligible environmental impacts, small hydropower has an important role to play in Nepal's future energy supply. Accordingly, micro-hydro system is becoming increasingly popular as an energy source in rural Nepal. Use of environmentally-friendly technologies and implementation of sound legal and institutional issues are critical to improve the reach of the population to hydropower. To make the Plan targets in the power sector a reality, directing more resources to the power projects focusing on rural population remains the pre-requisite. The major strategies of the power sector have been appropriately identified as promoting private sector participation in power generation and distribution, integrating rural electrification with rural economic development programs, and strengthening power infrastructure. The immense role of the power sector in contributing to the generation of broad-based, sustainable and high level of economic growth as well as improving the relative competitiveness of the economy both on a regional and global basis makes it imperative that the programs and activities on power sector development as visualized in the plans and policies be given the utmost urgency, priority and focus.